For this week’s Guest Post Friday, we welcome back Nathan B. Hinch. Nate is an attorney at the law offices of Mueller, Reece & Hinch, LLC in Bloomington, Illinois, where his practice includes advising real estate, construction, environmental, and other businesses regarding the law, and represents them in conflict mitigation and resolution efforts, including arbitration, litigation, and administrative proceedings. He can be reached at firstname.lastname@example.org .
Most if not all States have statutes on the books seeking to protect consumers from fraudulent business transactions generally. It is essential for contractors to be aware of these laws and how their requirements affect your business operations. In this article I will highlight some key issues in one such statute in my home State, Illinois. While these statutes can vary from State to State, many of the same principles will apply. To be sure of the specifics in your State, check with an attorney licensed in that jurisdiction.
The Illinois Consumer Fraud and Deceptive Business Practices Act
In Illinois one such statute is called the “Consumer Fraud and Deceptive Business Practices Act,” found at 815 ILCS 505/1, et. seq. (the “CFA”). The CFA addresses consumer fraud generally as well as referencing other state laws that affect specific businesses and industries.
The Bottom Line – the CFA provides for the Attorney General or State’s Attorney to seek and a court to award injunctive relief, restitution, and civil penalties up to $50,000 (or up to an additional $10,000 if the victim is 65 years of age or older) and for an aggrieved party to have a private cause of action for actual damages and to recover their attorneys’ fees and court costs. Punitive damages may be available. Some States may additionally provide for the recovery of “treble damages,” which simply means three times the amount of the actual damages incurred.
Elements of the Private Cause of Action – For a private litigant to state a claim under the CFA generally, she must show the following: (1) an unfair or deceptive act or practice by the defendant; (2) defendant’s intent that plaintiff rely on the deception; (3) that the deception occurred in the course of conduct involving trade or commerce; and (4) actual damage to the plaintiff (5) proximately caused by the deception. Avery v. State Farm Mut. Auto. Ins. Co. 835 N.E.2d 801 (Ill. 2005), Parks v. Wells Fargo Home Mort., Inc, 398 F.3d 937 (7th Cir. 2005).
“Unfair or Deceptive Act or Practice.” Section 2 of the statute elaborates on this to identify “the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact…” and adds by reference “the use or employment of any practice described in Section 2 of the “Uniform Deceptive Trade Practices Act.” 815 ILCS 505/2. Section 2 of the CFA also indicates consideration is to be given to the interpretations of the Federal Trade Commission and the federal courts relating to Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. 41, et. seq. Id. The CFA then goes on in Sections 2A through 2MMM to address identify what is an “unfair or deceptive act or practice” as it pertains to specific businesses or transactions, in addition to the general definition in Section 2. Without going through each of these here, the following are particularly relevant to the construction industry: Section 2Q “home improvement or repair businesses…;” Sections 2U, 2V and 2W regarding radon testing; and Section 2Z “violations of other Acts,” which itself lists a variety of other statutes including the Home Repair and Remodeling Act, 815 ILCS 513/1, et. seq. (the “HRRA”) and the Residential Real Property Disclosure Act, 765 ILCS 77/1, et. seq.
“Intent to Rely on the Deception.” It is important to note that the plaintiff does not need to show the defendant intended to deceive, nor is it necessary for the plaintiff to show that she was actually deceived or actually relied on the deception, but merely that the defendant intended plaintiff to rely on what may have been “innocent misrepresentations or material omissions” intended to induce such reliance. Shannon v. Boise Cascade, 783 N.E.2d 1105 (Ill. App. 4th Dist. 2003).
“Course of Conduct Involving Trade or Commerce.” Notably absent from the elements of the cause of action is a requirement that the plaintiff itself be a “consumer.” First, the statute clearly provides that a corporation or other business entity may be a consumer; consumers are not just individual persons. 815 ILCS 505/1(c). For example, an Illinois business such as a contractor, whether a corporation or not, can file suit against its insurer or insurance agent for violation of the CFA, because in that circumstance the business is itself a consumer of insurance services. Fox v. Industrial Cas. Ins. Co., 424 N.E.2d 839 (Ill. App. 1st Dist. 1991), Golf v. Henderson, 876 N.E.2d 105 (Ill. App. 1st Dist. 2007). But even a non-consumer, such as a competing business (a business that is not itself consuming any product or service of the defendant), can file suit under the CFA. In that case, the plaintiff (a non-consumer itself) to have standing to sue must show a “consumer protection nexus,” by alleging facts showing the conduct involves trade practices directed to the market generally or otherwise relates to consumer protection issues. Lake County Grading Co. of Libertyville, Inc. v. Advanced Mechanical Contractors, Inc., 664 N.E.2d 1109 (Ill. App. 2nd Dist, 1995).
“Actual Damages” and “Proximate Cause.” Actual damages here means “actual pecuniary loss.” Kim v. Carter’s Inc, 598 F.3d 362 (7th Cir. 2010). But how much is enough to be actual? By comparison, attorneys are familiar with the famous contract law requirement that there must be more than a “mere peppercorn” amount in terms of legal consideration. In the Carter’s, Inc. case, the court analyzed whether the plaintiff had shown that she had been damaged by losing the “benefit of her bargain,” meaning that she would have to pay more to get the product elsewhere in the marketplace. Id. The court found the plaintiff failed to do this and therefore dismissed the case. But beware – it is not uncommon in these cases for the “actual damages” amount to pale in comparison to the attorneys’ fees awarded to the successful plaintiff at the end of the case.
Contractors need to be aware of their State’s CFA, similar or related laws, and have a conflict resolution strategy prepared in advance as to how to deal with potential claims raised by customers, or even in some cases subcontractors or competitors. Consider how well do your contract documents protect you in the event such a claim is raised against you? What recourse do you have? The best approach is to consult with a knowledgeable construction law attorney in your jurisdiction to help protect your interests.